The Mess in Illinois and the Public Trust Case for Pension Reform

Pension crisis in Illinois perhaps the most dramatic in the U.S.

April 25, 2016

This article was originally published on the Huffington Post on April 25, 2016.

By David A. Dean

Public pensions are wildly underfunded in many political jurisdictions across this country. The pension crisis in Illinois is perhaps the most dramatic: Illinois municipal bonds are treated as “junk” by the markets for good reason. How and indeed whether Illinois successfully undertakes pension reform and puts its financial house in order is important for Illinois, but also for the other States and localities with underfunded pension obligations, because Illinois is, in a sense, the canary in the coal mine. And one issue that has already been key in Illinois - and will be elsewhere - is whether the state courts support or defeat statutory efforts at pension reform. So far, the Illinois courts are a model of what courts elsewhere should not do.

In 1892, the modern “public trust” doctrine was born when the United States Supreme Court in Illinois Central Railroad v. Illinois held that the public trust doctrine - a doctrine that holds that the government has a duty to future electorates and future generations and thus cannot alienate key public resources - prohibited the Illinois legislature from selling three million acres of Lake Michigan lakebed and shoreline to a railroad company. The United States Supreme Court essentially undid an imprudent and almost certainly corrupt legislative giveaway of complete and exclusive control of what since has become the very heart of the Chicago metropolitan area.

Fast forward one hundred and twenty plus years, and consider, by contrast, the Illinois Supreme Court’s recent decisions regarding public pension reform, which invalidate State and City of Chicago efforts to modestly lessen the staggering pension crisis they face. In 1970, Illinois adopted a new state constitution that contains a provision stating that public pensions cannot be diminished. Reading this provision in a highly literal, absolutist manner, the Illinois Supreme Court seemed to hold that any modifications to pension terms and benefits for past or current employees were therefore prohibited by the Illinois constitution. Quite possibly, the result is going to be that, because of an imprudent choice of wording made in 1970, wording that opened up the possibility that pension liabilities would come to consume state and localities’ budgets, already-inadequate state services for the most vulnerable people in Illinois, disabled and poor kids, will be cut. And already understaffed public agencies of all sorts will continue to freeze hiring or be forced to cut payrolls. The state’s financial ability to pay for education, disability services, health care and the like is, of course, very different from a tangible public resource like Lake Michigan, but that financial ability also could be considered part of the public trust - part of what one poorly-thought-out act of lawmaking in 1970 should not be allowed to undermine almost a half century later.

It might be argued that the Illinois Supreme Court had to defer to what the State Constitution says because the State Constitution is the final word in the law, above everything else (except the federal Constitution). But if a group of land developers today somehow got together the political power to push through a state constitutional amendment to sell Lake Michigan, or if a group of libertarian activists pushed through an amendment that could be read as prohibiting any property tax increases no matter the public need for more money, one would hope that the Illinois Supreme Court would at least view those amendments with suspicion. Faced with such amendments, one would hope that the Illinois Supreme Court would try to interpret them in the way that made them as consistent as possible with the idea of a public trust. Likewise, in the pension context, the Illinois Court could and should have recognized that public trust concerns should guide its interpretation.

In this case of the 1970 pension provision, the wording was open-ended enough that the Illinois Supreme Court could have defensibly interpreted the provision to allow the very modest pension reforms embodied in recent state legislation. “Diminish” can be understood in a variety of ways. The Court could have and should have been guided by public trust concerns in coming to a constitutional interpretation that would have both protected overwhelmingly the interests of past and current public employees and helped ensure that Illinois would meet its obligations to all its current citizens.

It is possible that, in the wake of the Illinois Supreme Court’s decision, there will be a new constitutional amendment to undo the 1970 provision. Or perhaps the State Legislature will enact new taxes large enough to cover at least some of the unfunded pension liabilities. But that will take time, and in the meantime, there are localities in Illinois simply not paying their bills to private agencies that provide critical services, and there are individuals and families at risk of losing services they desperately need. As the New York Times recently reported, Chicago State, a local college that serves predominantly African-American students from low-income households, may soon close for lack of State funds. If the Illinois Supreme Court had heeded the wisdom of the United States Supreme Court’s 1892 decision in Illinois Central Railroad, Illinois would already be on the path to ensuring that its citizens today receive and will receive the services that, by all rights, they should be able to expect.

Although other States lack Illinois’ constitutional provision regarding pensions, legal suits seeking to block pension reform in other States, including Takings claims for the Taking of pension rights as form of property, almost certainly will be brought as those States confront the extent to which their pension obligations are underfunded and perhaps simply impossible to meet. And perhaps some of these suits should succeed on the merits, but the consideration of the merits should include consideration of public trust principles and the need to ensure that the welfare of the public, including future generations, is safeguarded.

- David A. Dana is the Stanford Clinton Professor of Law and Associate Dean for Faculty Research at Northwestern University School of Law.